*** I'm on my way back to Baltimore this morning so this
will be short.
*** Stocks moved without much direction or conviction
yesterday. The Dow ended the day down 2 points. The S&P 500
managed to rise 10 points.
*** But the Nasdaq seemed to get excited about something
and rose 97 points.
*** Mr. Bear is at the beach for a few weeks in the summer.
This would probably be a good time to get rid of overpriced
stocks, before he gets back on the job. He's likely to be
tanned and fit...and ready for some serious work.
*** High on your list of things to sell should be the Big
Techs. These 'must own' stocks of the new era are probably
the least likely - apart from the dopey dot.coms - to make
an investor any money.
*** William Fleckenstein cites the example of Micron. The
company has been so popular that it is now selling at a 40%
premium to GM, despite the fact that it has made no money
in the last two years. GM has revenues more than 40 times
those of Micron. Or compare it with Merrill Lynch which has
a similar market cap. Where Micron had only $4 billion in
sales in the last twelve months and a big zero of earnings
- Merrill earned $2.5 billion.
*** The Big Techs are overpriced because they are popular
with TV commentators and investors who believe in the
efficient market hypothesis. They think they don't have to
study the stocks carefully - because the market has already
factored all the relevant information into the price. But
if investors don't pay attention to the important
information...or know what it means...prices no longer
reflect what stocks should sell for, but what investors
want them to sell for. The market is efficient at
separating fools from their money - even elegant at doing
so - but not at pricing stocks.
*** Bonds fell back. The dollar rose. Gold fell 70 cents.
And platinum rose $7.60.
*** Investors are still pumping money into mutual funds.
Almost $17 billion of new money flowed into equity funds in
May, down from the $34 billion of April, but more than the
amount from May '99. It is a bad sign that this money can't
seem to lift stock prices appreciably.
*** I'm glad poor old David Ogilvy is no longer paying a
mortgage. The celebrated ad man and distant neighbor of
mine in France shuffled off this mortal coil last fall,
after suffering from Alzheimer's disease. The trouble with
us copywriters is that it's hard to diagnose mental
disorders. I mean, how can you tell?
*** But at least Ogilvy has been spared having to read
those ads for a company called Archipelago. All I know
about the company is that it has money to waste on silly
ads. I spent quite a while trying to figure out the point
of its amusing ads - which take up the first two pages of
this week's Barrons. The ads break all Ogilvy's rules. Even
the rules of grammar.
*** A recent survey of adult Americans revealed that 82%
had never heard of the New Economy.
1929 Again? Low inflation lulls investors into a false
security. But there's a lurking danger. In 1929, one of the
worst asset bubbles in history, consumer price inflation
was near zero. That encouraged loose monetary policies and
fed the bubble. Truckloads of easy credit money are being
dumped into the stock market today. And most investors are
clueless concerning the dangers. Could another Depression
be coming? Read the 5 Myths of the New Paradigm... free. http://www.dailyreckoning.com/corprofits3
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Thank God for the French. At a recent meeting of the
world's most high minded public servants, the French
refused to go along with the gag.
Madeleine Albright and the American delegation were
shocked. They didn't expect any resistance to the idea that
democracy should be promoted worldwide as panacea for any
and all political ailments.
But the French delegates, by virtue of their sheer gallic
contrariness, stumbled upon an insight. Not so fast, they
said: "You can't impose democratic institutions," on
countries that are not ready for them, they said.
"Democracy must arise naturally among people, not be forced
Democracy is misunderstood by almost everyone. It is used,
loosely, to describe the gradualist, consensual political
systems of countries such as the U.S. The word describes
the complex machinery of politics - in which there is such
broad participation by so many interest groups and so many
different checks and balances in the system, that extreme
positions are hard to maintain and radical changes are very
difficult to make. The machinery of the system tends to
favor moderation and centrist positions. We still become
slaves of the state, but little by little. So little, we
Behind all the committees, special interest groups,
political parties, and bureaucracies there is also the more
literal aspect of democracy - the ballot box and the awful
arithmetic of democracy. The average piddling regulation is
of no concern to the average voter. The average
pettifogging bureaucrat is no nuisance to him. Nor is he
the one who pays his salary; the average dollar does not
come from the average voter.
The arithmetic gives the whole system a bias against the
very thing it is supposed to protect: liberty. The voter,
through the ballot box, has the power to exploit Pareto's
Law. Eighty percent of the people typically own 20% of the
wealth. The other 80% of the people own the other 20%. So,
the majority uses the ballot box to take wealth away from
those who have it and give it to themselves. The rich are
Ultimately, as Phil Burnham wrote in the Financial Post in
April, reprised by Jim Davidson in Strategic Investment:
"[T]he gift that government bestows on the rich by not
killing them and selling of their bodies for parts is
another tax expenditure of billions of dollars that could
otherwise be used to create jobs for the poor."
Democracy gives us all an interest in the government. As
Hillary Clinton put it, "the government is all of us." The
government, grown immensely powerful on the logic of
democratic arithmetic, demands all that we have and all
that we are in return. Anything that we are allowed to keep
is considered a "tax expenditure." Even body parts.
Without the vote, we would naturally distrust our rulers.
Throughout most of history, kings, emperors and local
potentates ruled. It was difficult for them to impose high
rates of taxation. The population would revolt. The
American colonists revolted against England over tax rates
of less than 3% and trade restrictions that seem trivial in
comparison to the multitude of constraints and regulations
under which the average American toils today. But democracy
gives the would-be revolutionary a stake in the system. He
can now sit at the king's table and enjoy the bounty of the
tax farmers too.
The history of the last two hundred years in America is a
history of the spread of democracy. The first people to
vote were the rich landowners. But as the franchise
broadened, the fatal flaw in the system, logical
consequences of democratic arithmetic, began to assert
themselves. As more and more people voted, the bigger and
more oppressive government power became.
People now understand how the system works. They know that
the system has a mind of its own. As a consequence, they no
longer see the point of voting! Fewer than one voter in 4
turned up to cast a ballot in Alabama's presidential
primary. In New Mexico it was less than 30%.
The ruling class is worried. Is the trend of the last two
centuries finally coming to a close?
As always...more to come
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Last modified: April 02, 2001
Published By Tulips and Bears